Understandability and Transparency of the Financial Statements of ...

However, the notion of control is a major issue in charities especially in relation to NZ
IAS 27 Consolidated and Separate Financial Statements, where there is an absence of
legal instructions of ownership typically found in public benefit entities, including
charities (Bradbury & Baskerville, 2008; Controller and Auditor-General, 2009). The
need for the concept of control to be further developed so that it can apply more
effectively in a NFP (including charities) context was raised by England, Canada,
Australian and New Zealand in their report on the application of the IASB framework
(Australian Accounting Standards Board et al., 2008). The definition of „control‟ and
the concept of „returns‟ being inappropriate for NFPs, including charities, were both
raised in a submission (Not-for-Profit Sector Advisory Committee, 2009f) that the
author was involved in, on IASB ED10 Consolidated Financial Statements
(International Accounting Standards Board, 2008a). This is an example of another
complexity where some groups have both for-profit and NFP standards, and was
highlighted by Simpkins in his review of the Australian accounting standard setting
(Simpkins, 2006b).
In New Zealand, NZICA considers that consolidated financial statements provide more
relevant information than a suite of individual financial statement for each entity (New
Zealand Institute of Chartered Accountants, 2005). Rees and Dixon (1983) found that
several organisations prepared separate activity accounts rather than consolidating,
which gave a very fragmented picture of the not-for-profit. This was supported by
Newberry‟s study (1992) which found that 35% of her sample required consolidated
accounts and none of these charities consolidated their subsidiaries. An opposing view
to disclosing separately is Mautz (1989, p. 66) who considers that all that is needed is an
assertion that “all restrictions on the use of funds received has been scrupulously
observed”. Another opposing view is that of Weinstein (1978) cited in Cordery and
Baskerville (2005) who considers that the reduction in transparency found in fund
accounting outweighs any benefits of tracking specific legacies. On the other hand,
Ashford (1986) presents a rather contradictory view by considering that the
consolidation of funds is not desirable, as it results in a reduction in the amount of
information in the accounting report. However, he goes on further to say that the use of
separate funds “can make the reading of accounts quite difficult and hard to see an
overall picture of the work of a charity” (Ashford, 1986, p. 23). He unfortunately
doesn‟t offer a solution to this conundrum.
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